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,W3 

CAPITAL 



A Popular Discussion of Savings, Profits 
and the Eights of Property Owner- 
ship From a New Viewpoint 



By GEORGE L. WALKER 



Price 15 Cents 



Copyrighted, 1914, by 

DUKELOW G WALKER COMPANY 

246 Washington St., Boston, Mass. 



CAPITAL 



A Popular Discussion of Savings, Profits 
and the Rights of Property Owner- 
ship From a New Viewpoint 



The Fundamentals of Economic Science in 
the English of Every Day Use 



By GEORGE L. WALKER 

Editor of The Boston Commercial 



Published by 

DUKELOW & WALKER COMPANY 

Boston, Mass. 



HBso\ 



« 



Copyrighted, 1914, toy 

DUKELOW & WALKER COMPANY 

246 Washington Street, Boston, Mass. 



DFC 12 1914 
•CU388815 






TO THE READER. 

Dear Sir: — 

You are requested to consider this as a personal 
communication written with the hope that you will 
give every statement it contains your most careful 
consideration. After you have done so I shall be glad 
to receive from you an unrestrainedly frank reply 
and I promise to give my personal consideration to 
any question you may ask and to every point you 
raise, whether it be in commendation or criticism of 
the facts I have presented or the deductions I draw 
from them. 

Yours very truly, 

GEORGE L. WALKER, 
Editor Boston Commercial. 



Should the person who denies himself the enjoy- 
ment of many luxuries in order that he may save a 
portion of his income be forced to share his savings 
with those who have not saved? 

Should the person who saves be permitted to invest 
his savings as he chooses and to make as large a 
profit as he can? 

The foregoing questions are the most vital ones 
that the present generation has to answer. If you 
are not confident of your ability to answer them de- 
cisively, in terms that admit of no controversy, you 
will find much to interest you in the following pages. 



THE REASONS FOR THIS PAMPHLET. 

During the past seven years a nation-wide wave 
of reform has been sweeping over the United States 
and it seems to have drenched every state and na- 
tional legislative body with its spray. 

Congress and the legislatures of the various states 
have been constantly employed with the work ot 
crystalizing into law numerous theories developed by 
those who honestly desire to improve the material and 
spiritual welfare of mankind, and also some of the 
schemes advanced by those who seek to promote 
their personal political success, or to avenge real or 
fancied wrongs done them by competitors. 

The drift is towards socialism and anarchy. 

Hundreds of political commissions have been cre- 
ated to investigate corporations and to outline plans 
for the governmental regulation of business. The 
legal departments of states and nation have brought 
hundreds of suits against the various industrial and 
transportation companies, a few of which have re- 
vealed evidence of wrong doing and of deliberate vi- 
olation of law, but a vast majority of them either 
have failed to prove the government's contentions or 
are still pending. 

The expenses of these commissions and of this lit- 
igation have run into the hundreds of millions of 
dollars and this burden rests upon the shoulders ot 
the whole people. Industrial activity has been re- 
stricted and business interests have been compelled 
to spend millions for additional clerk hire to compile 
information for the government and its commissions 
and to pay still larger sums for private legal advice 
with a view to ascertaining what they may or may 
not do legally. 



6 CAPITAL 

For illustration, the Sherman anti-trust law was in 
existence nearly 20 years before the government un- 
dertook its rigid enforcement, and it was after this 
aw was on the statute books of the nation that a 
large majority of the industrial and transportation 
consolidations and combinations, which have since 
been prosecuted for its violation, were openly 
brought about with the full knowledge of the public • 
and they did not evoke at the time so much as a 
murmur of disapproval from the legal departments 
of the states or nation. The men who effected these 
combinations and consolidations believed in sub 
stantially every case, that they were acting within 
the law and they were so advised by eminent Wal 
counsel. 5 



CAPITAL 



THE PUBLIC HAS NOT BEEN BENEFITED BY 

NEW REFORM LEGISLATION, OR BY 

GOVERNMENT PROSECUTION OF 

BIG BUSINESS. 

It is now beginning to be generally appreciated 
that the people as a whole have not received any ben- 
efit whatever from the great grist of reform laws, 
any adequate return for the vast sums expended by 
political commissions, or any increase of their liber- 
ties or decrease of their burdens through the vigor- 
ous attempt of the government to enforce the anti- 
trust and business regulative statutes. 

During the past seven years the cost of living has 
constantly advanced, taxation has tremendously in- 
creased and opportunities to obtain employment have 
continuously decreased. 

The great reform movement was brought about 
and given support in expectation that it would purify 
and raise the "standard of politics, that by destroy- 
ing monopoly it would open the field to the establish- 
ment of new industries promotive of helpful compe- 
tition and, most important of all, would improve the 
opportunities of the individual by enabling him to 
increase his income and at the same time buy the 
necessities and luxuries of life at lower prices. None 
of these results have been realized. 

Here is a mass of fact which should convince us 
that there is something radically wrong in the char- 
acter of the reforms brought about and that the the- 
ories of the reformers must have been based large- 
ly, if not wholly, on false premises. 



CAPITAL 



WHAT IS THE WELLSPRING OF INDUSTRIAL 
PROGRESS AND GENERAL PROSPERITY? 

My study of all available evidence and my obser- 
vation of results has satisfied me that, paradoxical as 
it may seem, it is the agitation in favor of reforms 
that is chiefly responsible for the conditions which 
make reforms seem to be desirable. 

When conditions and tendencies are once definite- 
ly known to be wrong;, reform unquestionably be- 
comes necessary. With many people, however, re- 
form agitation becomes a habit or a disease and they 
get so they want reform for the sake of change rath- 
er than for the sake of improvement. 

The trouble is that the doctors of economics, com- 
monly known as political and social reformers, at- 
tempt to treat symptoms without first thoroughly in- 
forming themselves as to the cause from which 
these symptoms arise. 

The first thing to be done is to get at the well- 
spring of industrial progress and prosperity, to as- 
certain from what one thing the people of the world 
are deriving the greatest amount of benefit, and then 
to conserve, defend and protect that thing and en- 
courage it to radiate its blessing influences in ever 
growing volume and with increasing rapidity. 

I have satisfied myself that the most important 
thing in the world is the supply of capital, meaning 
the total accumulation of savings and profits, and 
that the progress, prosperity and well-being of the 
poor as wejll as the rich depend upon giving it that 
protection and encouragement which will cause its 
owners to invest it without fear or restraint in pro- 
ductive, manufacturing and transportation enter- 
prises. 



CAPITAL 



THE LEADING FACTS WHICH ARE TO BE 
DEMONSTRATED IN THIS DISCUSSION. 

It requires no effort to demonstrate that capital 
is the kernel of economic science. It is as sensitive 
as it is important, and whenever reform agitation is 
directed against it or any attempt made on the part 
of the public to regulate it or restrict it in its activi- 
ties, a distinct injury is done to society and the 
whole people are made to suffer. I shall show: 

That the accumulation and untrammeled use of 
capital have been responsible for humanity's rise from 
primitive barbarism to the highest standards of en- 
lightened and prosperous civilization ; 

That the ownership of capital is by no means as 
important as is its existence; 

That a small amount of capital is able to exert a 
more powerful coercive and domineering influence 
over prices, wages and the liberty and independence 
of the people than a very large amount is; 

That the competition of capital increases propor- 
tionately as the accumulated supply grows, mean- 
while steadily reducing the competition of labor; 

That the waste, destruction, misuse and discour- 
agement of capital, and the public's antagonism of 
the rights of private ownership, are responsible for 
substantially all industrial ills; 

That the best interests of the people cannot be 
served in any country, under any system of govern- 
ment as yet tried or suggested, unless capital is con- 
served and recognized as the one most important of 
all factors; 

That big profits are beneficial and not detrimental 
to the public welfare, and that large fortunes are by 
no means a source of danger to the community. 



io CAPITAL 



EXPLAINING WHAT CAPITAL IS AND WHAT 
IT IS NOT. 

Webster defines capital as "That portion of the 
produce of industry which may be directly employed 
either to support human beings or to assist in produc- 
tion." 

Unimproved land and undeveloped natural re- 
sources, works of art, monuments, the pyramids of 
Egypt and capital tied up in other non-productive 
forms are more properly defined as wealth, notwith- 
standing most of these can be sold and thereby ex- 
changed for capital. 

All existing capital is at once both the excess pro- 
duct of mental and physical endeavor and the com- 
bined savings of millions of frugal people of the 
past and present generations. 

We see it in the tools and machinery, equipment 
and methods of production, transportation and dis- 
tribution, the houses we live in and the clothes we 
wear. 

Mines, mills, factories, railroads, ships, domestic 
animals, food stuffs, raw and partly manufactured 
materials for further manufacturing, growing timber 
— to the extent that it will sell for more than the 
cost of cutting, transportation and manufacture — 
developed waterpowers, ores, coal, oil and other use- 
ful earth products are capital, and also improved 
agricultural lands, irrigated areas, farm buildings, 
fences, seeds, fruit trees and vines. 

Education and all the acquired knowledge of 
scientific and effective methods of producing, manu- 
facturing and distributing necessary and desirable 
things are capital. 



CAPITAL ii 

Knowledge, resourcefulness, ability to handle men, 
to make effective plans and to execute them, a good 
character, the habits of truthfulness, thrift, reliability, 
industry, a disposition to be fair and just, to avoid 
bitterness, jealousy and envy toward your fellows, 
constitute personal capital and happy and prosperous 
is he who possesses them all. 



12 CAPITAL 



ACCUMULATION AND USE OF CAPITAL RE- 
SPONSIBLE FOR THE RISE OF 
CIVILIZATION. 

The rise of civilization from primitive barbarism 
has been reviewed by all economic writers in at- 
tempts to prove a great variety of theories; but all 
of them have overlooked the main fact — that the 
rapidity of man's progress has depended in every in- 
stance upon his success in producing a surplus and 
using it to educate his children and to supply him- 
self with such tools, equipment and systems as 
would increase the effectiveness and accelerate the 
productivity of his labor. 

The human race has increased in numbers, much 
as birds and the lower animals do, as rapidly as the 
food supply and successful resistance of the aggres- 
sions of its natural enemies would permit. 

The first human being to shape a stick, a stone or 
a shell so that it would aid him in acquiring food, 
raiment or shelter, and in personal defence, was the 
first capitalist. 

The accelerated rapidity of production, which was 
made possible by the use of the capital that gradually 
accumulated, has yielded the growing surplus which 
has been used to create mankind's ever increasing 
benefits and conveniences. 

Not until it became possible for 10 men to pro- 
vide food, clothing and shelter for 20 families were 
education, literature, art and science possible. These 
in turn have given us everything of which civiliza- 
tion can boast. 

A primitive man could be honest and just, could 
bow in true devotion before his god, obey all the 



CAPITAL 13 

natural and moral laws, be a good son, brother, hus- 
band, father and neighbor. All additional that civil- 
ized men now possess, education, enlightenment, 
methods, systems, facilities and organizations, repre- 
sent the excess product of effort, that which has 
been produced, created, earned and saved, and neither 
wasted nor destroyed. 

The standard of civilization in any country and the 
progress and prosperity of its people depend pri- 
marily upon the available supply and growth of capi- 
tal and whether it is given such protection, security 
and encouragement that it is invested and its profits 
and interest reinvested at home. 

Rapid progress in the creation of excess capital 
is dependent upon an abundant and easily acquired 
food supply, that is, cheap food. If 90% of the 
workers must be employed constantly to feed, clothe 
and house the 100%, then only 10% can devote their 
time to works of improvement. 

When all men were obliged to occupy their entire 
time getting a bare living and defending their lives 
there was no one who could undertake the develop- 
ment of the industrial arts, or find time to make 
tools and weapons. 

The most rapid progress has been possible, there- 
fore, ' in countries where only 20 to 30% of the 
workers are required to keep up the food supply. 
This explains the wonderfully rapid industrial ad- 
vancement of the United States. 

We often hear it said : "Good crops will bring 
'prosperity" ; and, "The crops are the backbone of 
industry." 

The meaning of these statements is that only when 
there is an ample food supply is it possible to employ 
large numbers of men in constructive lines. Men 
who are buiflding railroads, developing canals, and 



14 CAPITAL 

water power, installing electric plants, erecting houses 
and factories, constructing machinery, manufacturing 
clothing, etc., must be fed, hence the advantage of 
good crops. 



CAPITAL 15 



WHY THE GROWTH OF CAPITAL SHOULD 
BE GIVEN EVERY ENCOURAGEMENT. 

Just as an accumulation of capital was necessary to 
enable humanity to emerge from barbarism and start 
on its upward progress toward civilization, so a con- 
tinuing growth in the volume of capital is required 
to assure our present and future prosperity — to make 
possible the excess of production we demand to satisfy 
our constantly increasing needs and desires, and 
those of an ever growing population. 

By the use of tools, implements and weapons prim- 
itive man was able to hunt more successfully, re- 
move skins more quickly for use as clothing, and he 
could better defend his life against the attacks of wild 
animals. 

Thus his possession of capital, by increasing his 
food supply and providing clothing to protect him 
against inclement weather, lengthened his life and 
made possible a material increase of population. 

If he had reduced his active or working hours pro- 
portionate to the advantage gained by the use of 
these primitive weapons and tools, however, his ma- 
terial advance would have stopped short and there 
would have been no further progress toward a higher 
civilization. 

If the saving men had been eliminated 5000 years 
ago and profit taking and interest prohibited by law 
humanity today would be in the same stage of in- 
dustrial development that the American Indians 
were when Columbus first sailed from Spain. 

Growth of capital is always characterized by im- 
provement in methods of production, manufacturing 
and transportation. Better systems are adopted and 
new machinery replaces that which is not fully up 



16 CAPITAL 

to date, to the end that results may be obtained at 
the lowest possible cost. 

There are several big corporations in this country 
that have thrown away millions of dollars worth of 
machinery to make way for the introduction of bet- 
ter and more effective equipment. The managements 
of these companies keep them up to date and thus 
so hold down the operating costs that they are able 
to provide continuous employment for their workmen 
and dividends for their stockholders. 

When capital is driven away by fear or discour- 
agement improvement of practice and equipment 
ceases and the burden of competing with more pro- 
gressive countries, under the handicap of obsolete 
machinery and antiquated system, must be borne by 
the working people and the community. 



CAPITAL 17 



SHOWING THAT INDUSTRIAL PROGRESS 

IS THE PRODUCT OF INDIVIDUAL 

SAVINGS. 

Shorn of all technical terms, the highly developed 
and wonderfully productive system of industry with 
which we are now blessed is the product of individual 
savings. 

A great many people of this and preceding genera- 
tions have seen fit to deny themselves the pleasures 
of high living and expensive entertainments that oth- 
ers around them were enjoying and to save and invest 
a portion of their incomes. 

These savings in the aggregate have paid for the 
agricultural and mining developments, furnished the 
powerful and efficient equipment now used so ad- 
vantageously in these industries, constructed the rail- 
roads, built the ships that go to sea, erected mills, 
factories and shops, perfected labor saving inventions 
and so made it possible for a light day's work to 
produce more now than 10 or 20 days of hard manual 
labor could a few centuries ago. 

The capital so acquired and inherited by a portion 
of the people of one generation has been given by 
them to their descendants in the next. Where the 
receivers of inheritances have used such capital wise- 
ly and been frugal in their expenditures large for- 
tunes have accumulated. 

Instead of being detrimental to the welfare of the 
country and the people, these accumulations are prov- 
ing to be of the greatest possible benefit. They sup- 
ply tools and opportunities for the employment of 
labor, establish new industrial enterprises, increase 



1 8 CAPITAL 

the supplies of food and other necessities and exert 
an influence to advance wages. 

Large fortunes and big profits furnish the means 
and the incentive for that industrial activity, pro- 
gress and prosperity that are so beneficial to all 
classes of people. 

Some of the largest fortunes in this country were 
made in mining and other related enterprises. 

Assume that two men or corporations undertake 
the development of different groups of mining claims. 
In one group $1,000,000 is lost through failure to find 
ore; but the owner of the other makes a net profit 
of $10,000,000. 

This profit will be reinvested to the great benefit 
of the whole people, for it will create industries that 
otherwise must have been omitted or deferred. 

If it is invested in vacant land the sellers of the 
land must use it in some manner that will stimulate 
and increase industrial activity. 

The more capital there is employed the greater is 
the business progress. Just as a decreasing volume 
of business means hard times, so an increasing vol- 
ume means prosperity. 



CAPITAL 19 



HOW THE GROWTH AND RESULTANT COM- 
PETITION OF CAPITAL BENEFIT 
LABOR. 

Many highly educated men who have writter. 
plausibly and convincingly have endeavored to teach 
the workingman that capital is his worst enemy. 
As a matter of fact it is his best friend, for it pro- 
vides him employment, lightens his labors and so 
increases his productive capacity and compensation 
as to enable him to live better now than even the 
greatest rulers and potentates did before capital be- 
came abundant. 

The man who works with his hands, unaided by 
capital, and produces for himself one unit of value 
per day, is only one quarter as well off as when, 
aided by capital, he is turning out six units of value 
per day and receiving four units as his compensation. 

A man with a steel spade can turn over 10 times 
as much soil in a day as he could with the dead limb 
of a tree or with a flat stone. Supply him with a 
horse and plow and he will beat his steel spade rec- 
ord 10 times over. Given a traction engine, a gang 
plow and disking harrow he can prepare for seeding 
as large an area in a given time as could 10 men and 
horses, 100 men with spades or 1000 men with sticks 
and flat stones. 

The larger the excess of production, above that 
used by the workers, the greater the amount available 
for new industrial undertakings. It is excess of pro- 
duction, that is, profits and savings, that creates the 
increasing demand for labor, and tends to advance 
wages and to reduce prices. 

From the standpoint of the workingman prices are 
more relative than real. Flour is cheaper to him at 



\ 



20 CAPITAL 

$7 a barrel when he is paid $3 a day than it is at $4 
when his wage is $1.50. 

In order to employ labor to the best advantage 
there must be a full supply of tools and machinery, 
a cash or credit reserve from which good living 
wages are paid while the preliminary work is being 
done, and perfectly developed plans and systems for 
the conduct of the work. 

Capital cannot earn profits and interest except 
through the employment of labor. The appreciation 
of real estate values and the ability of government to 
collect tax money for its support, are based upon local 
and general industrial prosperity. 

Labor without the assistance of capital and the 
directing influence of an ingenious plan-making mind 
is usually wasted. It is like fishing without a hook 
or spear. Under such conditions you may possibly 
catch a fish. Without capital or clear mental vision 
a man may sustain life, but with such handicaps uni- 
versally imposed most of the men now living would 
die of starvation. 

If the world's total supply of capital were obliterat- 
ed at one stroke — even as one's house and furnishings 
are sometimes completely destroyed by fire — at least 
half of all the human beings on the earth would die 
of starvation and exposure within a few weeks and 
within a few years the world's population probably 
would be reduced by 70 to 80%. 

The capitalist or employing class is commonly 
charged with having no regard for human beings, 
with hiring labor at the lowest possible wage and 
with "robbing the workers of what is justly theirs," 
It is claimed that "the worker is entitled to the full 
product of his labor." 

From the standpoint of exact justice the worker, 
when not assisted by any capital of his own, is justly 
entitled to as much and no more than he would be 



CAPITAL 21 

able to produce or acquire in a primitive state, in a 
country the resources of which had not been devel- 
oped by capital. This might amount on an average 
per day to what he can buy now for 20 or 30 cents. 
All he gets in excess of this comes from the portion 
that in simple justice belongs to the capital, which to 
that and a greater extent has increased the productive 
power of his labor. 

Capital, through its competition for profitable em- 
ployment, has advanced the wages of the worker to 
several times the amount of value his labor would be 
able to create without the aid of capital. 

Labor should recognize this advantage and work 
for further progress along this particular line; but 
instead of expressing gratitude its agitators are 
vociferously demanding that labor be given all of the 
share that rightfully belongs to capital. 

The efforts of capital to obtain the most efficient 
workmen and to find a market for its product grow 
steadily in ratio with its increasing accumulation and 
use. The results are advancing wages and a reduced 
margin of profit per unit of material produced, man- 
ufactured and transported. 

Fifty years ago the manufacturers of the Connecti- 
cut Valley received 28.45 cents per pound above base 
cost of the metals for brass wire, and 2J.72, cents for 
converting copper into wire. They now receive 2.25 
cents above base cost for brass wire and one cent for 
drawing copper into wire. Meanwhile the wages paid 
have approximately doubled. 

In all other lines of industry the results have been 
similar. Competition of capital in manufacturing and 
in the converting of materials has steadily reduced 
the difference between cost and selling prices. 

The high cost of living is chiefly due to wage ad- 
vances, reductions in the hours of labor, decreased in- 
terest and effort on the part of the workers, discour- 



22 CAPITAL 

agement of capital, increased taxation and the exces- 
sive cost of distribution, to the tremendous expenses 
of conducting retail merchandising. 

When capital is brought more and more strongly 
into competition it can maintain its earnings only by 
greatly increasing its activity. 

The manufacturer or merchant having $1,000,000 
of capital, turning it over only once a year and mak- 
ing a net income of 6%, takes three times as 
much from the people for a given amount of service 
as he would if he turned his capital over six times 
annually and made a profit of 12% ; in the first 
case he must get $1.06 for an article the gross cost 
of which is $1 ; and in the second he sells the same 
article for $1.02. 

The public never figures out such matters. It 
imagines that the concern paying 12% dividends 
necessarily must be robbing the people. 

The benefit derived by the public from the existing 
supply of capital is more than twice as great as the 
income received by the owners. This can be proved 
by mathematical computation. 

It is estimated that the total wealth of the United 
States is $130,000,000,000, and that it yields the own- 
ers an average of 3 1-2%, much of it represent- 
ing nonproductive property and a large portion be- 
ing invested in 2 to 4% bonds. The owners, there- 
fore, derive a total income of about $4,550,000,000 an- 
nually. 

Now the average yearly wages paid in China, where 
the workman is aided only to a slight degree by capi- 
tal, is less than $100; and the Mexican farmer of the 
interior country raises about $100 worth of products 
annually. 

By comparison, there are at least 20,000,000 workers 
in the United States who receive an average of $600 
annually in wages. The $500 yearly excess compen- 



CAPITAL 23 

sation, which each of our working people derives 
through the aid of capital and its competition, aggre- 
gates $10,000,000,000, and this is more than double 
the profits that accrue to the owners of the country's 
combined capital and wealth. 



24 CAPITAL 



ARE HUMAN RIGHTS MORE IMPORTANT 
THAN THE RIGHTS OF PROPERTY? 

When rioting occurs in connection with labor wars 
and when the capital invested by the people of one 
country in another is threatened with destruction by 
revolution the possible sacrifice of life in the defence 
of such property is usually greeted by a wail of pro- 
test from self-styled humanitarians. 

Accumulated capital has saved, prolonged and in- 
creased the comfort and happiness of hundreds of 
lives for every one that has been lost defending it. 

You hear a great deal about human rights as dis- 
tinguished from property rights. If no capital had 
been accumulated or the amount in existence were 
rapidly and continuously decreasing, human rights 
would not be worth while. They would not even be 
discussed. 

The best philanthropic, scientific and political agen- 
cies are constantly working to combat disease, yet 
were a new form of plague to sweep the world it 
could hardly be expected to destroy as much life as 
would the obliteration of all capital. 



CAPITAL 25 



SHOWING THAT BIG PROFITS FOR CAPITAL 

ARE BENEFICIAL TO THE WHOLE 

COMMUNITY. 

The occasional making- of big profits is in no way 
a detriment to the people ; it is in every way of great 
public benefit. It is the lure of possibilities of profit 
that causes thousands of new enterprises to be 
launched, which otherwise would never be undertaken. 

Condemnation of big profits and of so-called trusts 
usually comes originally from unsuccessful rivals. 
The manufacturer who can turn out any standard ar- 
ticle of a style and quality that make it more accept- 
able to the public, and sell it at the same or a lower 
price very naturally monopolizes the demand. His 
profits grow to tremendous proportions and many 
of his competitors are forced to improve their practice 
greatly or retire from business. His success injures 
his rivals, but it benefits the public. 

The business ventures that end in failure are so 
many that they defy enumeration. Unless these losses 
were immensely more than offset by the profits of 
successful undertakings there would be a continuing 
recession in the supply of capital ; hence the neces- 
sity of profit making. 

It is a case of "no prize, no race." The possibility 
and prospect of winning are what make men strive. 
Without this striving there would be no more busi- 
ness activity, material progress and prosperity here 
than there are in China, Siberia or Central Africa. 

Growth of capital to finance new enterprises and 
the extension of those already in existence is abso- 
lutely necessary to continuing progress. If it is not 
supplied by large profits it must be accumulated by 
that slow process of individual self-denial and saving 



26 CAPITAL 

which a vast majority of the people find extremely 
distasteful. 

Whenever big profits are being made there is rapid 
industrial expansion. New enterprises are being es- 
tablished, labor is fully employed, wages are advanc- 
ing and the whole country is prosperous. Such 
general prosperity is never created by anything else. 

When a given line of industry yields big profits it 
attracts new capital, which creates and increases com- 
petition. Limitation of profits by law, therefore, 
would tend to restrict competition. 

Restricted profits would lead to reduced industrial 
development, loss of capital by this country through 
the avenues of investment abroad, a growing surplus 
of workmen competing for employment, declining 
wages and a decreasing home market for our pro- 
ducts. 

When there is an abundant and growing supply of 
capital seeking employment in profitable industries, 
capitalists are obliged to compete for the available 
efficient labor. They must improve working condi- 
tions and advance wages, thus increasing the inde- 
pendence and liberty of the workingman. 

The more capital there is the more it competes, 
and it is the competition of capital for profit and in- 
terest that develops natural resources, builds and op- 
erates railroads and factories, opens and equips mines, 
covers the oceans with ships, increases the demand 
for labor, advances wages and reduces the margin of 
profit, or the difference between the cost and the 
selling price of all commodities. 

If labor is to be "emancipated," therefore, the eman- 
cipation must come about through the encouragement, 
upbuilding and conservation of capital. In this work 
the government, the labor organizations and the vot- 
ers generally must co-operate. 



CAPITAL 27 

The best way to create competition in business is 
by permitting the so-called trusts, that is, the big in- 
dustrial combinations, to carry forward their plans 
unobstructedly. The}' are great creators of capital 
and their profits inevitably return in force to storm 
their own citadels. 

Did not Charles M. Schwab take his profits from 
the United States Steel corporation and use them to 
enter into competition with it in Bethlehem Steel? 
Cannot hundreds of similar instances be cited? 

Business competition increases with the growth of 
profits and capital, and in no other way. Unless 
capital is permitted to earn big profits in this country 
it will go to other countries where such privilege 
exists, and on its departure it will leave behind a 
decreasing demand for labor, declining independence 
and increasing poverty and want. 

A relatively small and declining supply of capital 
always increases the competition between the work- 
ers. Two or more men are after every job and wages 
decline, or, at any rate, do not advance. 

The wage earners are faced with decreasing oppor- 
tunity for employment and this tends to deprive them 
of the privilege of selecting the work in which they 
are proficient and which is congenial to them. They 
lose their power to dictate wages, hours of labor and 
shop regulations. What may properly be defined as 
their liberties rapidly disappear. 

In a community of 1,000,000 people and only 
$1,000,000 worth of accumulated capital the latter can 
dictate wages, conditions of employment and the 
prices of food and clothing to the 200,000 working- 
men. Bring $200,000,000 more capital into that com- 
munity and restrict it to employment there and the 
power of the capital over the workingmen immediate- 
ly disappears. 



28 CAPITAL 



CONCERNING THE WASTE AND MISUSE OF 
CAPITAL. 

Capital is wasted absolutely when it is burned up, 
lost in shipwrecks and otherwise irreparably de- 
stroyed. Through insurance it is simply replaced 
from the store of other capital already in existence. 

The very large amount of capital that is expended 
annually in unproductive and unprofitable enterprises 
such as trying to develop mines where pay ore does 
not exist, in building railroads where they will not 
actually be needed, in the erection of houses that will 
not be used, in employing the inefficient, lazy and 
wasteful who do not earn their wages or salaries, is 
not wholly lost. A part of it is wasted and the re- 
mainder simply changes ownership. Being paid to 
wage earners and for equipment and supplies, a por- 
tion of it is saved by those to whom it goes, and is 
reinvested. 

Pleasure automobiles, theatres and show tickets, 
baseball, wines, liquors, tobacco, etc., also distribute 
capital without producing anything of necessary value 
unless they do so by adding to the enjoyment of life.' 

Luxuriant living and extravagance, while they 
waste some capital, operate chiefly to distribute 
wealth. All of the money spent for luxuries goes to 
pay for labor, to purchase products and to pay mar- 
gins of profit to inventors, planners, manufacturers 
and merchants. 

Wasteful extravagance is to be deplored, however, 
for it would be much better for all concerned if this 
capital were conserved and put to better uses. 

It should be expended on intelligent plans for soil 
improvement, planting and cultivation of fruit and 
other useful trees, conservation and use of water sup- 



CAPITAL 29 

plies, exploration of mineral bearing areas, good roads 
and in the employment of men of inventive genius to 
create and improve machinery and develop better 
systems for the handling of materials and of raising 
the standards of efficiency in such ways as would 
improve the productive capacity of labor. 

It is not intended to decry pleasures or luxuries; 
but they should not be indulged in until they can be 
afforded. This applies to the nation and the whole 
world just as it does to the individual. 

The creation of luxuries and the enjoyment of pleas- 
ures represent consumption of food, materials and 
time. To supply and make these available the pro- 
ductive, transportation and manufacturing industries 
must be kept in a thoroughly healthy and flourishing 
condition. 

Such a condition can be created and maintained by 
giving every encouragement to and providing securi- 
ty for the private capital that is employed in the nec- 
essary industries. The government should neither 
interfere with, attempt to regulate nor excessively tax 
such capital. 



30 CAPITAL 



THE DANGER OF CONVERTING TOO MUCH 
CAPITAL INTO FIXED WEALTH. 

If too large a proportion of the new capital that is 
created and saved annually is used to erect buildings 
of more massive construction, of more expensive ma- 
terials and more richly, elaborately and artistically 
finished and furnished than are required for useful- 
ness, comfort and convenience, the more necessary 
industries are thereby deprived proportionately of 
both labor and capital. 

The clearest headed students of economics realize 
fully that this country for some time past has been 
tying up too much capital in bricks and mortar. 

Ancient Egypt tied up its surpflus capital in the 
building of the pyramids and the Sphinx, which, when 
completed, would neither increase the productivity of 
labor, feed, clothe nor shelter the people. 

The building of ancient Rome was a tremendous 
strain on the resources of the productive units of the 
Romans, and after the city was burned the rebuilding 
drained the community dry of its accumulated liquid 
capital, leaving the Romans a helpless and easy prey 
to the Barbarians from the north. 

A few thousand years ago a great civilization flour- 
ished in Mexico and Central America. It built its 
capital into massive architecture, instead of putting it 
into irrigation works, factories and transportation sys- 
tems, and that civilization also vanished as did those 
of ancient Egypt and Rome. 

Now the people of the United States are over build- 
ing. Too large a percentage of our new capital is 
going into real estate improvements, into theatres, 
show houses, automobiles and other unproductive in- 



CAPITAL 31 

vestments and entertainments, and into governmental 
extravagances. 

Meanwhile the government, by restrictive legisla- 
tion, regulation, and excessive taxation, is discourag- 
ing the productive, manufacturing and transportation 
industries, which is equivalent to drying up the river 
at its source, or digging away the foundation of the 
structure of values. 

It is largely as a result of the discouragement of the 
more vital and necessary industries that an abnor- 
mal amount of our surplus capital is going into real 
estate improvements, aid governmental extravagances 
and being wasted in luxurious living and entertain- 
ments. 

The savings banks and insurance companies are 
discontinuing very largely the purchase of railroad 
and industrial bonds for investment, because such 
bonds have been declining in price. They are steadi- 
ly increasing their real estate mortgage holdings. 
' Thus building is being encouraged and the supply 
of money available for extending productive and 
transportation enterprises is curtailed. 



32 CAPITAL 



ARMIES AND NAVIES REPRESENT A NECES- 
SARY WASTE. 

In the popular estimate the greatest wastes of capi- 
tal are caused by wars and by the maintenance of 
standing armies and expensive navies. This is very 
largely true, and it constitutes a much stronger argu- 
ment in favor of universal peace than the appeals 
from the humanitarian standpoint that come from the 
peace societies. 

If a government maintains a well-trained army of 
reasonable size and a strong navy and uses them as 
Great Britain does, to protect the capital of its people, 
at home, on the high seas and that invested in other 
countries, then the expense is justified; for it creates 
a confidence, a sense of security, that encourages in- 
vestment and thus promotes industrial progress and 
prosperity. Retire England's navy and that coun- 
try's leading position in the world's foreign trade 
would soon be lost. The same is true of Germany 
and of other commercial countries. 

Since the human race first made its appearance on 
earth the poorer tribes and nations have been jealous 
of the richer ones. Wars date back farther than the 
invention of gunpowder. Acquisition of territory, 
capital and trade have been the causes of most wars. 
Human lives are sacrificed in war, but wars are not 
for this purpose. 

When army and navy expenses are incurred for the 
simple purpose of maintaining a party or a monarch 
in power, they are not warranted — except in cases 
where the administration represents defence of prop- 
erty rights and security of capital. Unless a nation 
has these its working people will be forced to emi- 
grate in search of employment and the strength of 



CAPITAL 33 

the nation and its standard of civilization will surely 
decline. 

The four preceding paragraphs express views that 
may at first appear brutal to the cursory reader, but 
if he will analyze them carefully with an unprejudiced 
mind he will, I think, agree that they are true. 

Every wealthy country must continue prepared for 
war for at least two or three generations to come. 
Unfortunately the huge amounts of capital that 
armies and navies consume cannot as yet be put, with 
safety, to better uses. 



34 CAPITAL 



INVESTMENT FADS, TOGETHER WITH 
SOME RAILROAD HISTORY. 

Industrial progress is frequently interrupted and 
delayed by what may be termed investment fads, by 
which, for a time, too much capital goes into one line 
of enterprise, making its expansion more rapid than 
the demand tor the particular service or the product 
justifies. 

For some time past the country's productive and 
transportation industries have been suffering to some 
extent from the heavy expenditures for the construc- 
tion of the Panama and other canals, from over build- 
ing of skyscraper office and apartment structures in 
the cities, and from the tying up and partial waste of 
capital in pleasure automobiles, moving pictures and 
other luxurious facilities for entertainment. 

It will be recalled that the United States passed 
through a severe period of depression following the 
years of too rapid railroad construction and, as a re- 
sult, approximately 70% of its total railroad mile- 
age was at one time in the hands of receivers. 

Over capitalization has been quite generally blamed 
for these receiverships, but the trouble arose more 
largely from lack of earnings. The railroads had 
been built more rapidly than the country's business 
had grown, faster than the increase and distribution 
of population warranted. 

The stock issues of the railroads never threw them 
into receiverships. It was their inability to pay the 
interest on their bonded indebtedness. 

Some of the railroads issued too many bonds and 
were obliged to sell them at too great a discount from 
par. The real mistakes, however, were in building 
lines through sections of the country that were not 



CAPITAL 35 

sufficiently populated or their industries far enough 
developed to warrant the heavy investments that the 
railroad construction required. 

Such over expansion always results in a temporarily 
decreased income from the capital so tied up and the 
final loss and waste of a portion of it, and consequent- 
ly there follows a period in which there is less new 
capital available for the creation of the more vital 
enterprises, because more immediately needed, or for 
the expansion of those already in existence. 

So called watered capital never created a dollar of 
excess earnings in any business. Good judgment, 
able management and tireless enterprise may create 
sufficient capital to absorb the water in excessive capi- 
talization; but the same things would get equivalent 
results if there were no watered stock. 

It may be said in favor of the practice of watering 
stock that when a corporation overcapitalizes it cre- 
ates a condition that prompts its officials to put a 
larger percentage of the profits back into the busi- 
ness. 



3« CAPITAL 



THE SECURITY BEHIND GOVERNMENT, 
STATE AND MUNICIPAL BONDS. 

Because of the alarm of investors, occasioned by the 
persistent governmental intermeddling with business 
affairs, there has come to be an abnormal demand 
for what are considered absolutely safe investments. 

Government, state and municipal bonds, though 
frequently in poor demand, sometimes find ready sale 
at prices on which they yield only a little more than 
3 percent. 

Investors in this country seem to think that the 
government's credit will continue good, even though 
it destroys the industries from which come the earn- 
ings that pay every tax bill. 

The people bow humbly before the capitalist when 
they would borrow money to build schools, sewers, 
water works or bridges. They pledge the whole 
community and its property to the payment of such 
debts and the state exempts the holders of such bonds 
from taxation. 

When a manufacturer, an electric lighting corpora- 
tion or a railroad squints toward a town it is beckoned 
on with extreme cordiality. In not very rare instances 
it is given tax exemption for a short period. 

No sooner is such private capital converted into 
buildings and machinery, power plants, poles, wires, 
roadbeds, rails and stations, however, than the public 
apparently decides that it is an enemy of the people. 

The railroad is forced to abolish its grade crossings, 
reduce fares and freight rates, tear up freight yards 
and move them to the outskirts of the town ; the 
lighting company must put its wires underground and 
cut the charges for its service ; the factory must abol- 
ish child labor, reduce the working hours per week 



CAPITAL 37 

and not infrequently consent to the management of 
its working forces by the walking delegate of a labor 
union. 

In the meantime the taxation of all these enter- 
prises is rapidly increased. Each of them pays a cor- 
poration, state, municipal and income tax. 

Without these and similar enterprises the town it- 
self would have no excuse for existence and its bonds 
would be worth little more than blank paper. Muni- 
cipal or state ownership is not the solution, for no 
community can borrow until private capital has es- 
tablished profitable and substantial industries therein. 
The successful private enterprises in the United 
States are the only real security behind the govern- 
ment's bonds. 



38 CAPITAL 



THE RISKING OF CAPITAL AND THE 
HOARDING OF MONEY. 

A very large percentage of those who save and 
accumulate are willing to take an ordinary business 
risk. They will put a portion of their capital into a 
new enterprise, satisfied to take the chance of possible 
loss, if it promises large profits. 

If they have reason to fear that their profits will 
be limited by government regulation, however, they 
will refuse to take that risk, in addition to those 
which ordinarily are incurred in all new undertak- 
ings. 

As a result fewer new enterprises will be financed, 
industrial progress will be slower, there will be a re- 
duced demand for labor, the circulation of money will 
be retarded, cost of production will not decline and 
the prices of commodities and service will remain sta- 
tionary, or advance. 

To invest or not to invest is always the question 
confronting the man who saves. If he cannot trust 
his own government to give him a square deal, he 
hoards his savings or puts them into foreign secur- 
ities. 

The habit of hoarding is disastrous to the indus- 
tries of any country. It retires gold from circulation, 
causes money panics and dams up the sources of 
financing which are depended upon to supply the 
sustenance of business endeavor. 

Once acquired, the hoarding habit becomes chron- 
ic. Generations ago the people of India, lacking con- 
fidence in their government, put their surplus sav- 
ings into gold and precious stones and built fortified 
castles in which to hoard and protect their wealth. 

This habit became so fixed that after the British 



CAPITAL 39 

had established a staple government in India hoard- 
ing continued and it continues among the natives to- 
day. Every year they lock up. more gold and silver, 
to the extent of millions of pounds sterling, and the 
industrial development of the country lags. 

A country's prosperity is measured by the growth 
in the amount of capital that is employed effectively 
within its borders, by the increase and expansion of 
industrial enterprises. Unfortunate is that country 
that does not produce in excess of the consumptive 
requirements and luxury demands of its people. 



40 CAPITAL 



WHY THERE IS A WALL STREET AND THE 

FUNCTIONS PERFORMED BY SUCH 

FINANCIAL CENTERS. 

The theory that profits represent just so much 
money or capital stolen from the public, and that cor- 
porations are organizations formed to facilitate such 
robbery, is responsible for the growing disposition to 
condemn Wall street and the stock exchanges. 

It has been shown already that if every service 
were rendered at cost there would be no surplus with 
which to extend and expand the country's industrial 
equipment and facilities, and that profits necessarily 
are used for this purpose to the great and lasting 
benefit of the whole community. 

New industries must be financed, and often it is 
desirable to expand those already established. 

The average person who makes profits or saves 
from his income is not sufficiently well informed con- 
cerning the progress of industry, the development of 
operating efficiency, the growth of public needs and 
desires and the ability of individuals to supply them, 
so that he is competent to invest his surplus wisely., 
It is greatly to his advantage to be able to consult 
experts who devote their entire lives to the study of 
vailues and also to have the benefit of a public market 
in which prices are made by competitive buying and 
selling. These are supplied by the big investment 
banking and underwriting firms, which have their 
headquarters in the financial centers, and by the stock 
exchanges. 

To make a success of the stock brokerage and in- 
vestment business one must possess exceptional abil- 
ity and be scrupulously honest. He must be a most 
painstaking and tireless student of values, and have 



CAPITAL 41 

capital and the courage to risk it on the result of his 
investigations. 

The quite prevalent belief that underwriters and 
brokers float and recommend the purchase of those 
securities which yield them the largest profits and 
commissions is correct only so far as it applies to 
those fly-by-night promoters of wildcat companies 
whose business it is to prey upon people's 
ignorance by issuing certificates of capital- 
ization against impracticable schemes and valueless 
properties and using them to obtain money under 
false pretences. 

Those underwriting bankers and brokers who are 
members of the leading exchanges and associations 
probably devote the greater portion of all their time 
to the work of discouraging unwise financing and of 
preventing people with money from investing it un- 
wisely, and for such efforts they do not derive one 
cent of income. Their success depends wholly upon 
their ability to select good, substantial and profitable 
enterprises into which their clients may put their 
money. The brokers and underwriters who fail to do 
this soon lose their clients, waste their capital re- 
sources and are forced to retire from business. 

A clientele that is making good profits, obtaining 
regular interest payments and dividends on its in- 
vestments, and whose securities are tending to ap- 
preciate, forms the best asset that an underwriting 
or brokerage firm can possibly possess. 

This fact, of course, is self-evident, and it is a 
conclusive answer to the claims which are frequently 
made that some of our great underwriting firms have 
robbed the corporations for which they are the finan- 
cial agents. It is the first requirement of the under- 
writing banking house that it do everything within 
its power to build up the earning capacity and to 



42 CAPITAL 

maintain the stability of the enterprises behind the 
securities it sells. 

The underwriting bankers often perform a valu- 
able public service by restraining the corporations 
they finance from making excessive issues of securi- 
ties. Unless the corporation can show the under- 
writers conclusively that the new capital they wish 
to raise is needed and can be used for the benefit of 
the company, the underwriters refuse to market the 
proposed issue, and thus they exert an influence to 
prevent that over-expansion which would be dan- 
gerous. 

The stock exchanges, on which millions of shares 
and bonds are bought and sold daily, provide open 
markets in which securities are obliged to stand upon 
their merits. If a company is over-capitalized, well 
managed and so conducted that it can meet and with- 
stand competition, its securities advance and sell in 
some cases many times above par. 

Since the outbreak of the European war made it 
necessary to suspend their operations the importance 
of the stock exchanges is beginning to be recognized 
more fully than ever before. When securities are not 
readily salable they cease to be good collateral for 
loans. This makes capital less readily obtainable for 
business purposes, and every department of industry 
and trade is contracted. 

If the stock exchanges were abolished capital would 
be made less liquid and the great insurance compa- 
nies, for example, would be unable to sell their in- 
vestments and make prompt payments for heavy 
losses by the insured. 

Investors throughout the whole country would be 
deprived of that most valuable source of reliable in- 
formation as to the market value of investments which 
is furnished them by the record of stock and bond 
transactions published daily in the press. 



CAPITAL 43 

There is no other line of business in which the 
commission charge is anything like as low as it is 
in stock and bond brokerage. The commission for 
selling ioo shares of stock having a value of $ioco 
to $20,000 is $25, and this is divided between the 
buyer and the seller. Real estate and commodity 
brokers charge many times this rate of commission 
for turning over property or commodities of equal 
value. 

It must be seen, therefore, that to abolish the 
stock exchanges would be to increase the expense and 
cost of buying and selling securities and that it would 
increase very greatly the opportunities for the prac- 
tice of fraud. 

Speculation is not to be deplored. It is probable 
that 90% of all the capital saved and invested repre- 
sents an effort on the part of the man who saves 
and invests to obtain profit through appreciation in 
value of the commodities, property or securities he 
buys. Speculation, therefore, promotes saving and :t 
is the most powerful of all agencies that operate to 
increase and expand industrial development. 

Thousands of people, yes, tens of thousands, own 
Standard Oil, Telephone, Calumet & Hecla, United 
States Steel, American Tobacco, and other shares at 
present highly valuable, which they bought years ago 
at very low prices, and the price appreciation and div- 
idends of which have made them comfortably rich. 

If these companies did not have tens of thousands 
of stockholders there might appear to be some real 
ground for the claims of socialistic reformers that the 
wealth of the country is concentrated in a few hands. 

The stocks and bonds of the successful dividend 
paying corporations of this country are owned by 
more than 5,000,000 people, and 15,000,000 to 30,000,- 
000 more are indirectly owners through their savings 
bank deposits and life insurance policies, 



44 CAPITAL 



WHY THE RIGHT OF PRIVATE OWNERSHIP 
SHOULD BE RESPECTED. 

The right of ownership is based upon possession, 
through honest and legitimate acquisition. 

Nearly all men earn and make more than they are 
actually compelled to spend, and those who deny 
themselves luxuries and pleasures to save, become 
owners of capital. 

No matter how large your income may be, you 
cannot become a capitalist except through self-de- 
nial. There can be no justice, therefore, in laws that 
confiscate, in whole or in part, directly or indirectly, 
the capital of those who have saved, for the benefit of 
those who have not. 

Every wage earner of the present day who is will- 
ing to eat the plain food, wear the rough clothing, en- 
dure the lack of home comforts and conveniences and 
confine himself to the meagre expenditures for luxu- 
ries that his great-great grandfather did can save from 
half to three-quarters of his income and soon become 
a substantial capitalist himself. 

A century or two ago the average daily wages of 
a mechanic would buy from one-half bushel to one 
bushel of wheat. Today it will buy from two to five 
bushels. 

This multiplication of the workman's compensation 
is wholly due to the tremendous increase in capital, 
which has furnished tools and machinery to increase 
the productive capacity of man and also constructed 
the great transportation systems which for a small 
charge bring food and other commodities from the 
remotest corners of the earth to the great centers of 
population. 



CAPITAL 45 

You are vitally interested in the existence of a large 
and growing supply of capital, even though you do 
not own any. You are somewhat in the position of 
Ikey on the ocean liner. 

A sailor rushed up to Ikey and cried : "Hurry, hur- 
ry; the ship is sinking." "Vy should I care," replied 
Ikey, "the ship don't belong to me." 

The capital that has been saved, accumulated and 
invested in productive industries, even though you 
own little or none of it, is just as important to you as 
was the boat to Ikey. It keeps you afloat. 

This point was forcibly illustrated by the recent 
disastrous fire, which destroyed the business and man- 
ufacturing section of Salem, Mass. 

Following the fire it became necessary to raise 
$500,000 to $1,000,000 immediately to feed, clothe and 
house several thousand people who had been thrown 
out of employment. They, and not those whose cap- 
ital had been destroyed, were left homeless and help- 
less. 

The capital owned by others had been supplying 
these poor people with opportunity for self support. 
The landlords, merchants, manufacturers and their 
stockholders did not appeal for aid. 

These poor, jobless, hungry people were not fed by 
the. socialists, the labor unions or the government. 
Congress turned down flat the first request for $200,- 
000. Before it was finally forced by public opinion 
to contribute, private capitalists had supplied nearly 
$500,000 in cash and other necessities. 

This shows how vitally more important the exist- 
ence of capital is to the public than is its ownership. 



46 CAPITAL 



FAMINES, FORMERLY OF FREQUENT OC- 
CURRENCE, MADE PRACTICALLY IM- 
POSSIBLE BY ACCUMULATION AND 
USE OF CAPITAL. 

Since history began to be written millions upon 
millions of people have died of famine. Only a few 
centuries ago famines were quite common, visiting 
one nation or tribe of people after another at irre- 
gular intervals. 

Ancient history is filled with accounts of famines; 
but modern literature is written chiefly by those who 
never stop to inquire how famines have been oblit- 
erated and rendered practically impossible. 

Indeed, nearly every magazine and newspaper you 
now read contains either vicious or simply foolish 
condemnation of those great agencies that are pro- 
tecting humanity from the recurrence of famine. 

Were a man to publicly advocate abolishing hospi- 
tals, physicians and medicines, he would be sent to a 
mad house; if he will but rant against the railroads, 
and the grain in elevators and meats, eggs and 
fruits in cold storage "held for purpose of speculation", 
he likely will be sent to congress. 

"But," the socialist will say, "under socialism the 
government would do the saving and accumulating 
in preparation for such emergencies and there would 
be no profit." 

Why assume that such a government would reflect 
the wills of a different people than the present one 
does? 

Is it not a notorious fact that governments invari- 
ably and for all time have spent more than their in- 
comes, that they have borrowed excessively and not 
infrequently repudiated their debts? 



CAPITAL 47 



THE NATURE AND FUNCTIONS OF MONEY. 

Technically, money is not capital; but gold, the 
currency basis of the highly civilized nations, is. 

Money is the medium or the instrument of ex- 
change and the certificate of capital delivered or ser- 
vice rendered. 

The fact that paper and subsidiary currency may 
at the option of the holder be exchanged for or re- 
deemed in a stated quantity of gold, which is accept- 
ed at full and equal value in all the world's markets, 
makes money in a way a measure of value. 

Numerous students of economic science have con- 
founded money with capital, and through this error 
in the premise have led themselves and others to be- 
lieve that all the blessings which actually do come 
from a large increase in the supply of capital, could 
be created by simply issuing an abundance of cur- 
rency. 

If we were obliged to decide whether all the mon- 
ey in the United States, or an amount of capital of 
equal value, corn, cotton, cattle, etc., should be de- 
stroyed by fire or lost in the ocean, we would di- 
rect, of course, that the money be sacrificed and the 
capital saved. 

Could we not ship this capital abroad and exchange 
it for as much gold as we had possessed of. all kinds 
of money previously? 

Dump all the world's gold upon our shores, run 
the mints and printing presses night and day, engrave 
the fiats of all governments on every paper note, and 
the country's crops would be no larger, the sheep 
would not grow a heavier fleece, the mines would 
yield neither more nor richer ores, and the fish in 
the ocean would no more greedily bite the fisherman's 



4« CAPITAL 

hook or come more readily to his net. Neither would 
all this money encourage increased industry nor thrift, 
and there would be no more food, raiment or shelter 
for the people than previously existed. 

Certainly we could use such a money supply as 
described to purchase commodities abroad and thus 
increase our possessions of capital; but in this and 
in no other way would our people benefit. 

In similar manner we now ship cotton cloth to 
China and import tea from that country. Although 
the sellers of the first and the buyers of the last are 
not identical, one pays for the other, the bill of ex- 
change, through a swapping of credits, performing 
what are generally understood to be the functions of 
money. 

Periods of great business expansion are often fol- 
lowed by financial panics, chiefly because the people 
become envious of those who are making large profits 
and take an attitude politically that threatens the 
rights of property ownership. The effect of this is to 
shatter confidence, which means to impair credit. 

This leads to the hoarding of gold just at the time 
when the burden of effecting exchanges is being 
shifted from credit to money. 

If the people could be made to understand that 
these periods of rapid business expansion are of tre- 
mendous benefit to every individual their antagonism 
would be silenced and panics would be avoided. Cred- 
it naturally increases proportionately with the growth 
of capital, the latter forming the basis of the former. 
Until credit is threatened there is never any danger 
of a financial panic. Permitted to perform its func- 
tions normally credit will supplement the work of 
money and finance all legitimate expansion. 



CAPITAL 49 



SOCIALISM; WHAT IT IS AND WHAT IT 
PLANS TO DO. 

Socialism is a theory which has been tested repeat- 
edly in relatively small communities and has never 
met with a notable success. 

Socialists claim, however, that their scheme can- 
not succeed on a limited scale because of the neces- 
sity of competing with, and of patronizing capitalis- 
tic interests; but that adopted universally it would 
create a heaven on earth and "give to the worker the 
full product of his labor." 

If there were no other objection to socialism its 
proposition that we virtually burn our bridges be- 
hind us, that we abandon both our property and all 
chance of personally accumulating any more, and 
enter a new system from which there would be no 
retreat except through revolution or starvation, would 
be sufficient to repel all men of normal reasoning 
powers. 

Under socialism the people would have to depend 
upon one central executive and managemental or- 
ganization. If this proved incompetent the public 
would be compelled to endure a period of extreme 
suffering and privation while the management was be- 
ing changed and new plans perfected and put in 
operation. 

In the industrial world it is already recognized that 
an undertaking may be too big to be handled and 
directed by any one human mind. Nothing now in 
existence, however, can be compared with the huge- 
ness of direct government control of all industries 
in a country like the United States. 

Socialism stands for government ownership and op- 
eration of all means of production and distribution, 



50 CAPITAL 

"to the end that labor may receive the full value of 
the wealth it creates." 

As to how the government shall obtain ownership 
of all existing wealth socialists are not in full agree- 
ment, some favoring purchase and others confisca- 
tion. 

The most vital question that a socialist govern- 
ment would have to handle would be that of excess 
capital accumulation and its uses. All progress un- 
questionably depends upon a continuing increase in 
the supply of capital and its efficient employment. 

If one generation of socialists were required to pro- 
vide the amount of new capital needed to make pos- 
sible the most effective employment of the larger gen- 
eration to follow, it would fall far short of getting 
the full value of the wealth it created. If it failed to 
make this provision there could be no progress. 

Socialists like to define capital as "stolen wages," 
or "that portion of labor's product of which it has 
been robbed." The greater portion of the $5,200,000,- 
000 deposited in the savings banks of the United 
States, and which alone represents one-twenty-sixth 
of the country's total wealth, is the savings of wage 
earners and belongs to the workers who saved it. 

Certainly these savings bank deposits cannot be 
classed as the "stolen wages of labor." If some of the 
socialists ever have their way, however, these sav- 
ings will be stolen by the government for the benefit 
of those people who could have earned and saved but 
who preferred to loaf and spend. 

Some of the leading writers on socialism have pic- 
tured an ideal state in which every known device for 
eliminating manual labor would be employed. The ci- 
ties would be so laid out that all service would be 
rendered by skilfully devised mechanical contrivances. 

In the agricultural districts cities would be built in 
which the farmers with their families would live and 



CAPITAL 51 

enjoy urban conveniences while they cultivated the 
surrounding area. 

Apparently every one of these writers has over- 
looked the fact that the creation of such conveniences 
would represent the accumulation and expenditure in 
the United States alone of tens of billions of dollars, 
and that if every able-bodied man and woman of the 
total population were to work 10 hours per day and 
be content with only the bare necessities of life it 
would require at least two or three generations to 
create this amount of excess capital, make the plans 
and bring this ideal labor saving scheme to perfec- 
tion. 

If socialists are sufficiently zealous in the advocacy 
of their ideal to undergo such privations for its real- 
ization, why do they not take possession of some vast 
unchartered area in South America or Africa and 
there create capital and build up a system according 
to their own liking? 

The answer is that deep down in the heart of every 
socialist is to be found an ambition, not to create 
capital, but to acquire that which has been created 
and saved by others. 

The socialists want to take over the businesses that 
have succeeded, not the failures; the crops that have 
been harvested, not the ground to be cleared and 
sown; the mines that are yielding riches, not those 
in which no ore was found. 

The progress of mankind toward civilization was 
held in check for countless generations by this same 
eagerness of many primitive people to acquire capital 
without working for it. No sooner had one tribe be- 
come industrious and raised crops and cattle than 
neighboring tribes made war upon it and frequently 
succeeded in taking aw r ay its possessions, such strife 
retarding the growth of population and discouraging 
industry. 



52 CAPITAL 

If there is anything in heredity we must assume 
that the labor agitators and socialists of the present 
time inherit the tendencies of those tribes that pre- 
ferred taking by force the products of the industry 
of others to working themselves. 

Should the socialists ever come into power they un- 
doubtedly would rest in ease until all the accumulated 
capital were consumed and thus civilization would re- 
vert to barbarism. 

It has been prophesied by sages that the end of 
civilization would come through a too high develop- 
ment of individual mentality, the result of which 
would be general insanity. Until this condition pre- 
vails it is improbable that the reign of universal 
socialism will begin. 



CAPITAL ss 



ARE LAND AND LABOR THE BASIS OF ALL 
WEALTH? 

Practically all economists declare that land and la- 
bor are the basis and wellspring of human prosperity. 
Of course these are essential, but no more so than are 
sunshine, air and water, and the existence of all to- 
gether do not always lead to material industrial pro- 
gress or create prosperity. 

The American Indians possessed, when Columbus 
first visited this country, the same land that we have 
now, and they labored hard to obtain the meagre 
necessities of life. They were not "bowed down by 
the burden of their mortgages," nor were they "robbed 
by the trusts." 

The same country is now supporting 30 times as 
many white people as it then did Indians, and the 
average white person consumes as much as 10 In- 
dians did. 

The only reason that the Indians did not progress 
was that they neither created and saved nor bor- 
rowed capital with which to increase the productivity 
of their labor. 

This country's progress was started by the capital 
that the early immigrants brought with them, and tre- 
mendously accelerated later on by capital borrowed 
and encouraged to come here from abroad seeking in- 
vestment. 

The borrowed money was so advantageously used 
that the wealth of the United States is now greater 
than that of the whole world 300 years ago, and at 
least 75% of this country's total wealth and capital 
is now owned by its own people. 

As another example of the unsoundness of the land 
and labor theory, conditions in China may be cited. 



54 CAPITAL 

That country is generally recognized as one of mag- 
nificent natural resources, and the Chinese are among 
the most industrious people in the world. They have 
demonstrated their ability as inventors, merchants 
and agriculturists. 

Notwithstanding that China comprises one-thir- 
teenth of the world's land area and has only a frac- 
tion less than one-fourth of the world's total popula- 
tion — 4,277,170 square miles with 400,000,000 people 
— in the matter of industrial progress and material 
prosperity it is far behind practically every other 
country. 

China's foreign trade amounts to only about $625,- 
000,000 annually, being less than that of Switzerland, 
which has only 15,976 square miles, 3,471,971 people 
and no seaport, and China's imports exceed her ex- 
ports by about $75,000,000 a year. 

China's stagnant condition is due solely to the fact 
that her people have not created capital and used it 
to increase their productive capacity. Lack of gov- 
ernmental stability has largely prevented foreign cap- 
ital from seeking investment there. 

The Chinese who save have a habit of hoarding 
silver, gold, precious stones and art treasures. It is 
estimated by a high authority that fully one-half of 
the cloth now made and used in China is still woven 
on hand looms. 

This illustrates how extremely primitive it is pos- 
sible for conditions to remain among an industrious 
people, and it explains why the average wage of the 
workmen in China is only a few cents a day. 

The same reforms that we have been discussing in 
this country recently were considered and acted upon 
in China 2000 years ago. They even went so far 
as to undertake an even division of the land, confis- 
cating at one time the greater portion of the large 
holdings. 



CAPITAL si 

The conditions specified, that the landless should 
plant a given number of trees and do other work with- 
in three years and that large holdings should be sur- 
rendered, were so generally neglected, however, that 
the penalty, the cutting off of heads, was revoked and 
the plan failed. 

This was due to the fact that when something is 
given to a pauper it doesn't make him industrious. If 
he was obliged to work before, he stops working and 
spends his gratuity. 

The same human characteristic expressed itself 
when China adopted a plan for the government to loan 
money to the farmers at 2%. Much of the money was 
stolen before it reached the farmers and the greater 
part of the remainder was used by the farmers to 
support themselves in idleness. 

The government money loaning scheme — similar in 
many respects to the one now proposed in this coun- 
try — resulted in the depletion of the public treasury, 
a general agricultural and business depression, and 
was followed by a most disastrous famine in which 
hundreds of thousands died of starvation. 

The low standard of living of the Chinese and of 
many other peoples is due to the fact that they have 
not been sufficiently "exploited" by capitalists. They 
have neither saved nor borrowed for industrial pur- 
poses. 

Put a few billions of dollars into the construction 
of railroads, building of factories, development and 
equipment of mines and improvement of agricultural 
practice in China and within a few years the standard 
of wages would be several times higher, the workmen 
would have a greater supply of food, live in better 
houses and give more attention to the education of 
their children. 



56 CAPITAL 



PRESENT AND FUTURE PROSPERITY DE- 
PEND UPON THE CONSERVATION OF 
CAPITAL. 

That we bequeath to our children ability to get a 
living is more important than that we leave them 
fortunes. They may lose or spend the money we give 
them, but if the country is blessed with. a lasting in- 
dustrial prosperity they still will be able to support 
themselves. 

It has been made clear that continuing prosperity 
depends upon a large and growing supply of capital. 
Therefore it is for the best interests of ourselves and 
our children that capital be conserved and its increase 
encouraged. 

Fear of confiscation by government, of demands for 
excessive compensation and reduced working hours 
by organized labor, of restrictive laws, of investiga- 
tions and regulation of business, not only tend to re- 
strict investment and thus to retard industrial growth 
at home, but they also discourage thrift. 

Why should one deprive himself of comforts, pleas- 
ures, and luxuries to save if the laws and lawmakers 
cannot be depended upon to protect him in the own- 
ership of his capital? Why take the business risk of 
investing your surplus income if it will not be per- 
mitted to earn profits and interest? 

We should use our influence to prevent the gov- 
ernment from imposing heavy taxation upon the 
necessary productive, manufacturing and transporta- 
tion industries. These enterprises are so essential 
that they should be given every encouragement. 

Every law that increases the taxation on industry 
or incomes, that is aimed to restrict or to regulate 
business profits, or that directly or indirectly takes 



CAPITAL 57 

from those who have earned and saved, with discrim- 
ination in favor of those who have not earned or saved, 
puts a premium on laziness, extravagance and waste- 
fulness. 

Such laws demoralize the poor, and by discourag- 
ing industrial initiative and investment aggrevate and 
render worse the conditions of the people they are 
intended to benefit. They represent the most expen- 
sive methods that could be conceived to attain a re- 
sult. You could with as much wisdom cut off your 
horse's leg to prevent him from running away. 

When the true science of government is finally un- 
derstood it will be the prime motive of the lawmak- 
ers and the administration to conserve capital. They 
will give every possible encouragement to the vari- 
ous business interests that produce, transport, manu- 
facture and distribute the necessities of life. 



58 CAPITAL 



SUGGESTIONS FOR TAXATION REFORM. 

The burden of taxation, so far as possible, should 
be saddled upon luxuries and upon non-productive 
wealth. 

All luxuries and pleasures, expensive homes, base- 
ball and other entertainment parks, country, golf and 
other clubs, automobiles, yachts, and parlor cars, pa- 
latial hotels, theatres and show houses, manufactur- 
ers and dealers in playthings, the various unneces- 
sary articles used for enjoyment and pastime, should be 
made to bear the larger portion of the burden of tax- 
ation just as liquors and tobacco are heavily taxed 
now. 

The owner of a $100,000 home — this does not mean 
a productive farm — should be taxed at a higher rate 
on the valuation than the owner of a $5000 home. The 
former is enjoying a non-productive luxury, and upon 
this luxury, rather than upon his stocks and bonds 
which represent productive industries, he should be 
taxed. 

The so-called single tax on land would be an ex- 
cellent thing were it not that by its adoption the gov- 
ernment would break a solemn contract and confis- 
cate or steal the property of individuals. 

Ownership of land is given full recognition by the 
community when taxes upon it are levied and col- 
lected. To tax such land to its full rental value 
would be to rob the owner of his property, as the land 
would cease to be a salable asset. 

It is a greater wrong for the people's government 
to rob the owners of capital or wealth than it is for 
the highwayman to hold up a citizen and take his 
watch. The highwayman is alone in his crime; but 
when the government turns thief a minority of the 



CAPITAL 59 

citizens, those who understand and honor the right 
of ownership, are made parties to such crime against 
their will. 

If highwaymen, burglars and other thieves were 
not punished and imprisoned they would soon create 
a reign of terror. The people would discontinue sav- 
ing and would avoid accumulating capital that could 
be stolen from them. 



6o CAPITAL 



THE EFFECTS OF A POLICY OF CONFISCA- 
TION. 

When a government becomes a thief — adopts a pol- 
icy of confiscation — it discourages and cripples in- 
dustrial development and business expansion., 

For illustration, suppose the United States govern- 
ment decides to take over the railroads, buying them 
on the basis of an arbitrary appraisal at a price rep- 
resenting less than the cost of duplication. This na- 
turally would be interpreted generally as the adop- 
tion of a national policy and every business in the 
country would begin to fear the necessity of losing 
its capital, property and established trade at a simi- 
lar sacrifice. 

The result would be that new capital would cease 
to seek investment in the United States. Even wage 
earners would refuse to put their money into domes- 
tic enterprises and would purchase government bonds 
and other foreign securities as the French people have 
since the government of France began taking over 
private enterprises. 

This would lead eventually to such a decrease of 
industrial activity in the United States that the gov- 
ernment's railroads would not carry passengers and 
freight enough to pay operating and upkeep expenses. 
Exempting the roads from taxation would simply 
transfer the burden of supplying the $113,000,000 the 
railroads now pay annually in taxes to other indus- 
tries, thus further discouraging private enterprise. 

If the railroads came to be a burden of expense to 
the government one of three expedients would be re- 
sorted to. Rates would be advanced, improvements 
discontinued or wages reduced. 

The government is now charging exorbitant pas- 



CAPITAL 61 

senger and freight rates on its Panama railroad. In 
the march of progress the government is generally 
behind, and the compensation of its postal and other 
employes in minor positions is lower than that paid 
by private enterprises for similar service. This is 
found to be conspicuously the case in the army and 
navy. 

Unquestionably the government has the power to 
force the men in its employ to accept any standard 
of wages it chooses to establish. If its railroad em- 
ployes were to go on strike they could be adjudged 
guilty of sedition and imprisoned or driven back to 
their posts by the army. Undoubtedly the public 
would demand such action. 

To assume that the people would permit the service 
rendered them by their own railroads to be suspend- 
ed, in order to enforce a demand from their own 
servants for a higher rate of wages than many of the 
people themselves are earning, would be the height of 
absurdity. If the end in view be to check the exor- 
bitant demands of the labor unions, government own- 
ership may thus find partial justification. 



62 CAPITAL 



THE PROBABLE EFFECT OF THE EUROPEAN 

WAR. 

Those who read and listen to the discussions of the 
European conflict often hear the statements made that 
"hundreds of millions of money will be wasted" or 
"thrown away," and that "the war will set civilization 
back 50 years." 

Money is neither wasted nor thrown away by war, 
except so far as the individual possession of it is con< 
cerned. War absorbs, wastes and destroys capital, 
but the money continues in existence, simply chang- 
ing ownership. 

Food, the fuel of human endeavor, is used in war 
to feed men who are engaged in the destruction of 
life and property. In peace it feeds people who are 
creating capital, building railroads and equipment, 
ships, factories and machinery, erecting houses, de- 
veloping mines and improving property. 

As the standard of civilization is measured by the 
amount of used and usable capital, it is advanced by 
that peace which is free from political, labor and other 
strife, and it is turned backward by wars. 

If the European countries involved emerge from 
war with their food supplies exhausted, their trans- 
portation facilities crippled, many of their factories 
destroyed, their cities burned and their population re- 
duced, they presumably will present splendid oppor- 
tunities for labor, as it will appear at a glance that 
millions of men must be employed to repair the 
damage. 

It will develop, however, that the demand for la* 
bor in this and other countries that have not been at 
war will be so much greater that there will be largely 
increased emigration from the war area. The creation 



CAPITAL 63 

of capital gives some employment, but created capital 
gives more. 

Only where there is an abundant food supply, eith- 
er raised or imported, is that industrial activity pos- 
sible which makes for the full employment of labor 
and the creation of capital. The European war will 
bring about a scarcity of food in the countries in- 
volved, which will have to be supplied chiefly by the 
United States, Canada, Australia and Argentina, and 
these countries will benefit industrially and financially. 

There is another way in which the United States 
can benefit greatly, provided the government co-oper- 
ates with the business interests. 

This war will saddle upon Germany, France, 
Great Britain, Russia and Austria enormously in- 
creased indebtedness and expenses. They must pay 
the cost of war and also pensions, re-establish fortifi- 
cations, rebuild navies, etc. 

Of course this will mean heavy increases in their 
taxation, which already was excessive before war was 
declared. Our manufacturers will be much better 
able to compete with those of Europe in the markets 
of the world if they are less heavily taxed. This is 
only one of many reasons why our vital industries, 
those that produce, manufacture and transport the 
necessities of life, should be relieved of excessive 
taxation. 



64 CAPITAL 



A PLAN FOR A NATIONAL ORGANIZATION 
FOR THE CONSERVATION OF CAPITAL. 

It is time for all classes of people to get together 
and work unitedly for the conservation of capital. 

Why not form a national organization of those 
business men and investors who recognize that the 
continuing industrial advancement of the United 
States depends wholly upon the investment of our 
capital and the reinvestment of our profits, interest 
and savings at home? What better slogan could be 
adopted than "The Conservation of Capital." 

Such an organization could scrutinize every legis- 
lative measure presented in congress and the various 
state legislatures and prevent the enactment of vi- 
cious legislation. Its political influence would soon 
become so great that it could force the repeal of the 
laws that are now discouraging investment and busi- 
ness expansion. 

By banishing the fear of confiscation by govern- 
ment, and of unjust and unwise regulation, we can 
strengthen the country industrially and bring increas- 
ing prosperity into the home of every citizen, bene- 
ficial to the poor as well as to the rich. 

Let the United States government adopt the fixed 
policy of recognizing, defending and protecting the 
right of ownership and our industries will command 
the surplus capital of the whole world. Our natural 
resources will be developed, enterprise will grow and 
expand, working people will have steady employ- 
ment at high and advancing wages and we shall set 
an example which will eventually cause peace and 
prosperity to encircle the globe. 



